US economy: Joe Biden has no magic wand to fix it

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But many economists and business leaders agree that no amount of government assistance to individuals and small businesses can fix the economy until the underlying cause of the problems – the Covid-19 pandemic – has been defeated. At best, the combination of the $ 900 billion plan adopted in December and this plan by the president-elect can only help the economy keep running on water until the pandemic is under control.

“This is a very big package, but it is about helping the economy stay united and hold together until the end of the pandemic,” said Mark Zandi, chief economist at Moody’s Analytics.

Zandi and other economists believe gross domestic product, the country’s broadest measure of economic activity, could soar if Biden gets his full package soon after taking office. But job growth will be much more moderate.

The US economy lost 22 million jobs in March and April and ended the year with another net decline of 140,000 jobs. Even with the 12.5 million jobs clawed back in between, the headcount of U.S. employers fell by nearly 10 million during the pandemic. Moody’s prediction that those jobs won’t be fully clawed back until 2022, even if Biden gets his full package.

“We’re getting strong GDP growth initially, but it will take 18-24 months to get all those jobs back,” Zandi said. “A lot of people just can’t get back to work until the pandemic is in the rearview mirror.”

Resolve the underlying problem

And unfortunately, the message from public health experts is clear: the pandemic will get worse before it gets better.
New cases, hospitalizations and deaths in the United States are nearing record highs. This could lead to further lockdown orders and business closures in many parts of the country, as has been imposed in other countries, especially with a new, more transmissible version of the virus. The vaccine being deployed is not expected to reach enough populations to allow the majority of Americans to return to normal life until the summer, at the earliest.
This could mean a slower-than-expected return to economic activity, such as dining out and traveling. The economy lost jobs in December for the first time since April due to massive unemployment at leisure and hospitality businesses, as well as restaurants and bars. The stimulus could help many businesses and individuals weather the storm, but it won’t prevent them all from going bankrupt, experts say.

“There’s not really much you can do from an economic policy standpoint as the pandemic continues to rage,” said Andrew Hunter, senior US economist for Capital Economics. “Things are going well for a while later this year, but most of all it depends on getting vaccines in place to get things back to normal.”

Biden has vowed to step up vaccination efforts which he says have been “a dismal failure so far.” But it’s unclear how successful these efforts will be, and how much they could be slowed down by the resistance of many members of the public to get vaccinated.

“We have a slower-than-expected vaccine rollout, and this is really weighing on expectations for a return to pre-pandemic life,” said Ed Moya, senior market analyst for Onada.

Uncertainty for businesses

And that uncertainty is causing problems for businesses, from retailers to airlines to banks, as they try to plan, even companies that have so far done well.

“The rules of the game keep changing. For a businessman, it’s overwhelming,” Zandi said. “They won’t feel like the coast is clear. This uncertainty will reduce the ability to go out and expand and grow. They aren’t going to hire more people because they don’t know what makes them tick. is waiting in the world. It’s going to be a process. I don’t think it’s like a light switch. ”

The fact that many companies have already closed permanently due to the crisis, leading to a permanent increase in job losses, also prevents the economy from quickly benefiting from the proposed stimulus package. The money Biden is offering in direct aid to most American households and increasing and extending unemployment benefits will help many families weather the crisis, but it will not undo all the damage done to the economy during the crisis. .

“It takes a lot less time to destroy jobs than it takes for the economy to create new jobs,” said Joel Prakken, chief US economist for IHS Markit, “I’ve seen estimates that a third of jobs lost will never return. in their previous form. “

Will this be enough?

Biden’s proposed money is only slightly less than what was passed under the CARES Act in March, but Biden made it clear last week that this was only the first step in what ‘he will ask Congress to spend. This first package is more than double the $ 787 billion stimulus package adopted shortly after Barack Obama and Biden took office in 2009, at the height of the Great Recession.

The money in the CARES law, passed at a time when more than 22 million Americans were losing their jobs, has had a notable impact on the economy and the ability of households to weather the economic crisis. Despite the economic upheaval, the number of individual bankruptcy filings fell by 31% in 2020, to the lowest level since 1987, according to Equip analysis for the American Bankruptcy Institute.

When will Americans see help from Biden's relief proposal? It's in Congress

“Continued government relief programs, moratoriums and lender postponements have helped families and businesses overcome economic challenges over the past year resulting from the Covid-19 pandemic,” Amy Quackenboss said, CEO of ABI.

But this support, as important as it is, has not ended the economic crisis. Even with millions of temporary layoffs called back to work, there are still 10.7 million people looking for jobs who cannot find them, 2.2 million more who want a job but have stopped looking and 6 , 2 million who only work part-time, even though they want a full-time job. Getting them back to work will take time, even with the stimulus, experts say.

And much of that aid has run out or will run out soon. It’s unclear how much of the $ 1.9 trillion Biden is asking for will be approved by a divided Congress. IHS Markit’s Prakken believes the final amount will likely be closer to $ 1 trillion. Moody’s estimates it could be closer to $ 750 billion.

But the key to economic recovery probably depends less on recovery than on the state of the pandemic and getting back to something more normal, for businesses and their customers.

“Deaths are likely to peak probably in late winter / early spring,” Prakken said. “It will probably be in the second half of the year that people are more comfortable going out.”

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